TFG Fund Services implementation of Xtrakter’s XREF service is all part of its strategy to concentrate on its core risk management and valuations business rather than be bogged down with in-house data sourcing and scrubbing, says Martin Toyer, CEO of the fund services firm. Previously, the firm had to dedicate in-house resources to source and scrub the fixed income data needed to support its role as an outsourced service provider of front office risk analytics and middle office valuations services to the hedge fund industry.
The firm sources data for its clients and provides them with a risk management platform and it is hoped therefore that the XREF rollout will now allow it to concentrate on the latter, rather than the former. But its plans do not stop there. “We are now looking to do similar rollouts for credit and equities data also,” says Toyer. “We are in progress with the credit rollout and are in discussions with a selection of vendors regarding equities data around corporate actions.”
For now, the firm seems pleased with its selection of XREF. “We had previously worked with Xtrakter when we connected to its Trax service (a trade matching and regulatory reporting service) and therefore we knew it was focused on the bonds space and was a gold source for this data,” explains Toyer. “Due to our previous experience with Xtrakter, we also knew that we could rely on the vendor for technical support if problems arose.”
However, XREF was not chosen off the bat, TFG Fund Services spent time before signing on the dotted line making sure that the product and the data were good enough. “We looked at four or five other vendors during this process and they fell into various groups: those that didn’t have the right technology or data, or those that wouldn’t work in the way we wanted,” says Toyer.
He indicates that connecting to the XREF platform has been pretty simple and the vendor has extended the service beyond its usual remit for TFG. “It is as simple as sending a message and getting back the data we need,” he continues. “We now have a set of data that we can rely on to be correct and we are resellers of that data to our end clients. Rather than doing all the work in-house, we have now freed up our time to focus on what we do best: risk management.”
The firm has just gone live with the solution, so it is still early days yet to be able to tell the full impact of the rollout in terms of tangible metrics. However, Toyer says TFG is now able to look at more complicated instruments than it was able to previously, due to the data it is receiving from Xtrakter, which has meant it has been able to extend its own product scope.
“Competitively this has allowed us to develop a high quality service approach to the market that we can build further upon,” he says.
The rollout also represents validation for Xtrakter that its new reference data service offers a sufficiently competitive proposition for the market. The vendor has been providing reference data to tier one investment banks, vendors and some asset managers for many years, but this has largely been through vendor redistribution arrangements, explains Richard Jinks, head of commercial at Xtrakter.
“A year ago we heard feedback from the market about interest in a service that would allow firms to pick smaller pieces of the reference data sets that we offered at the time. This was largely from buy side firms such as hedge funds and mid-tier asset management firms, who were not interested in bulk downloads of data in flat file formats, but rather much more targeted data,” he elaborates.
TFG Fund Services had a specific need for certain static data on fixed income instruments that it wanted to fill in order to meet its client requirements, continues Jinks. “It selected XREF as a best fit for this and it is an example of a client win where the customer had a particular targeted data hole to fill.”
Xtrakter’s heritage has been to acquire a lot of data into its business but a lot of this was not being fully exploited in output to its clients. “There was definitely a requirement for more accurate and voluminous data on fixed income transactions in particular from the market,” says Jinks.
“We took our existing data and built it into a new data warehouse, which allowed us to be much more prescriptive about the data we can pull together and provide to end clients. Now clients can prescribe the data that they want to receive from XREF and the format they wish to receive it in,” he says. “We are moving to a much more user defined type of service and firms can be very specific in what they request. For example, a tier one firm that already licenses vendor data may wish to rationalise the data sets it receives for fixed income instruments.”
The vendor has also increased the scope of the data in its database from approximately 150,000 fixed income instruments to around 300,000. It has also added new fields to the data it can provide to clients, which it has not previously offered. The vendor has shortened the rollout for the service significantly from when it was a flat file format: it is now XML-based and this makes delivery much simpler and faster, says Jinks. “We just need to create client accounts on our side and clients can potentially be up and running in a week, depending on how much work is required within their own internal systems,” he adds.
Clients typically provide the vendor with a list of ISINs to query and it sends them the data in an XML-based file, which means the data is available at a much more granular level.
This new service has also lent Xtrakter appeal outside of its traditional markets: “We have received interest from our usual base of UK and European customers, but we have also broadened our horizons with interest from US firms.”
In the post-Euroclear merger (which has involved a fair amount of head chopping and reshuffling), the vendor is therefore looking to leverage Euroclear’s footprint in terms of geographic coverage and services. “To this end, we are working with other entities in the Euroclear group to determine other reference data items that could be added to the XREF service. This is being led by the internal product management team,” explains Jinks.
Xtrakter’s intent is to also take XREF to the vendor community as a service. Overall, the vendor’s ambitions for the service are high: “We hope to be able to net around 20 to 30 firms over the course of a year for the XREF service, picking up mid-tier firms on a monthly basis.”
This all fits into Xtrakter’s wider ambitions for growing its market share, which will also involve further work around extending the scope of its Trax platform. “Given the importance of securitising transactions, there has been a lot of interest around Euroclear Bank’s collateral management services. And we are exploring ways that Xtrakter services could supplement and complement this area,” says Jinks. “There has been a pause after the acquisition of Xtrakter in order to align our strategies but we are now moving forward with new product development. For example, we will soon be adding new dashboard capabilities to Trax.”
It will be interesting to see how its ambitions in this space will compare with those of its rival the London Stock Exchange, which poached ex-Xtrakter CEO Kevin Milne earlier this year to head its revamped post-trade division.